What is a penalty interest rate on a credit card?
A penalty interest rate on a credit card is a higher rate charged by a credit card issuer as a penalty for late or missed payments. This rate is often several percentage points higher than the normal interest rate. This rate is typically applied to any purchases made after one or more payments are late. In Washington state, cardholders must be provided 45 days notice prior to the imposition of a penalty interest rate, and must be allowed to reverse the penalty rate after six months of timely payments. Additionally, in Washington, the penalty rate may not exceed 25% above the previous rate. It is important for cardholders to make all payments on time to avoid these penalty rates and any other extra fees or penalties. It is also recommended that cardholders review their statements regularly to make sure there are no sudden rate increases due to a penalty fee. This will help ensure they are not paying more than necessary.
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